15 July 2010 – Milan training workshop Spin-off creation: guidelines and rules

1. 15 July 2010 – Milan training workshop Spin-off creation: guidelines and rules Ing.Sabrina Prada – Polimi TTO sabrina.prada@polimi.it

2. Index • UNCHAIN partner overview • Polimi spin-off company definition • Players and different role of spin-off process • Polimi spin-off procedure • Polimi spin-off regulation 2

3. Patent Need Product Spin off Joint lab Res Contract U I The Castle of the Innovation Line Development Research Source: Pietrabissa (2008) 3

4. When a spin-off company? • Spin-off company could be a perfect valorisation tool when: • there is a potential new market • the licensing activity was not effective • Someone in the research team wants to become an entrepreneur 4

5. UNCHAIN partner overview Lebanon - Saint Joseph University  none Egypt - Cairo University  “Cairo University in itself does not yet have a system of creating spinoffs. However, there is an instition which is part of the ministry of ICT called ITAC provides an opportunity for young researchers to start their own companies by means of providing a space and a startup fund (usually around $ 10,000). The problem of this sort of structure is that after the money is consumed, the young entrepreneurs find themselves incapable of marketing whatever they have developed” “Cairo University has no formal structure to support spin-offs nor a formal policy as to how to encourage or deal with them. We have incubation structures for Engineering students who have ideas for a fixed period. Cairo University has a very recently developed policy for dealing with IPR matters.” Syria “there is no spin-off companies system in the Syrian universities, so there is no kind of regulation for this issue yet” 5

6. Polimi spin-off company definition • According to Polimi spin-off regulation, a Polimi spin-off company is: • a new established company • a company based on a research result developed by a Polimi research group • a company in witch a Polimi researcher is involved as promoter (shareholder or not) 6

7. Who is involved in spin-off process Inventor / researchers TTO staff University board Notary and business consultant  the real spin-off team group  the facilitators  the evaluators • help in establishment and running control (legal and administrative) 7

8. Polimi Spin-off process 8

9. project selection Researcher, Department and TTO are involved: By email, phone calls and meetings the Spin-off documentation is collected, refined and shared. Deputy Rector and Department Director analyze possible problem of conflict of interest. In parallel there is the preparation of business plan and all the other documents needed, possibly with the collaboration of both the notary and the business consultant (accountant). If the corporate structure provides for the participation of a industrial partner a consultant makes a due diligence on the economic and financial accounts of the company. 9

10. What we evaluate • In the evaluation process Researcher, Deputy Rector and TTO are involved. • The features that we analyze are mainly: • the business feasibility • the absence of conflict of interest • the shareholder team (due diligence on industrial partner) • the motivation of the promoters 10

11. project evaluation • When all documents are negotiated then the • proposal is evaluated by: • Spin-off commission • Board of Department Directors • University Board and Senate • If all the evaluators accept the proposal Deputy Rector • and Rector choose a Polimi professor, outside • founding team, who will rappresente the university in • the board and possibly in the Scientific Committee of • the spin off. • At this point the spin-off company is established • in front of the notary. • On the day of the first Board of spin-offs are • included the signing of other agreements (IP • management, trademark licensing, patent • licensing ...) that are not activated in the • constitution. 11

12. management agreements: documents needed Shareholders‘ agreements Statute In all the spin-off process the negotiation of all the agreements is the crucial part and often require a lot of meetings and phone call. IP management Trademark license (Patent exclusive license) 12

13. Statute: Polimi requirement • Article 11. "Special rights for shareholders" • Clause antidilutive ( if for capital increase Polimi share will decrease significantly) • A Polimi representative always in spin-off Board • Right of withdrawal • Other features • Future research activity must carried out at Polimi • % Of turnover to devote to research

14. Shareholders' private agreement : Polimi requirement Polimi authorization for newcoming shareholders Polimi authorization for capital increases (except for covering losses) Obligation for indastrial partner to cover financial needs Polimi do not cover balance losses Non-compete obligation Polimi preference on management accounting

15. Management of Intellectual Property Agreement • Covered four possible situations: • Research carried out only by the company • Research done by Polimi as part of a research contract • Research done by Polimi during spontaneous collaborations • Research conducted by Polimi but on issues of potential interest of the spin-off company

16. Policy for patent licence agreement • Patent are licensed and not sold • minimum Guaranteed + royaltyes • Administration of the patent up to the company (they pay patent costs) • Polimi spin-off trademark license free of charge

17. monitoring and feedback Yearly are required to the spin off, budgets, balance sheets, some data on staff employed and research activities. A member of TTO staff is appointed on behalf of the Rector with special decree to participate in meetings of shareholders to approve the budget and balance. As told, a Polimi Professor, outside of the founding team, is appointed on behalf of the Rector with special decree to participate to the meetings of the Boards of Directors of the spin off. Balance 17

18. equity management Yearly TTO prepares a report on spin-offs on its portfolio. Decision-maker bodies of the Polimi (University Board and the Academic Senate) decide about equity management issues following the suggestions of Deputy Rector (for example in case of modifications of shareholder’ equity or newcomers shareholders) 18

19. More details……. 19

20. Spin-off process (I) The establishment of a spin-off represents the final ideal of the technology transfer process, because it is a specific option deriving from the willingness to pursue an entrepreneurial opportunity in order to carry out a business plan. The choice to start a spin-off is influenced by some key-factors such as the type of the incorporated knowledge in the innovation, the exploitation strategies of research adopted by the University, the ambitions and the capacities of the researcher. This mechanism consists in starting a new company, sharing equities with university, that promotes existing university know-how and research results, which are sometimes patented. The main reason to establish a spin-off company is the exploitation of research results and the industrial development of new products based on technology owned by the university. In this mechanism the researcher has a key role because he becomes an entrepreneur. It is important to take into account that the researcher is not a manager and therefore the new spin-off company has to acquire management tasks from outside. 20

21. Spin-off process (II) • It is possible to list among the motivations of a university to undertake an activity of spin-off companies establishment: • Willingness to bring on the market a result of the scientific research • Chance to have an economic return from the shared companies, both in terms of profits with respect to the company activity, and for the surplus value that can be obtained by the sales of the company shares when it shows a growth rate so high to make it attractive to private investors. • Contribution to the territory development in which the University works, creating qualified job opportunities and economic wealth connected to highly innovative activities. • Chances to establish a company net connected to the origin University, which brings then opportunities of cooperation and research contracts. • Beneficial returns in educational field from the acquired experience, because the new companies are a spread laboratory with real and tangible experiences for the courses in entrepreneurship and providing chances to make theses and stages of a great value for the students. 21

22. Spin-off process (III) In the process of spin-off company creation, the TTO (Technology Transfer Office) is a structure, which has the evaluation as task in the preliminary phase for the transfer of the necessary and sufficient conditions to establish the new company based on the research results. In a first phase, the core business of the future company, the conditions of the reference market, the presence of actors, potential competitors, and mainly the motivation and the entrepreneurship features of the proponents have to be identified. In a second phase, it is necessary to provide assistance in drafting the business plan that will be submitted to the internal evaluation by the University. The TTO role, in this preliminary phase, is double: on the one hand, to promote the establishment process of a new company, on the other hand to help the proponents, some of them are inventors and University employees, to convert an entrepreneurial idea in a successful company. In this process, the TTO helps researchers in drawing up a business plan in order to evaluate the feasibility of the business idea arising possibly from the patented technologies and helping the university in the evaluation phase of the spin-off proposals. The business plan is usually evaluated by a university committee and the spin-off has to be approved by University Board. Some universities support university spin-off companies also hosting them within a technology incubator. 22

23. Spin-off process (IV) Procedures and policies supporting the spin off establishment • Universities perform the activity of technology transfer by internal structures, technology transfer offices with the objective to exploit the intellectual property of the university. In order to support the technology transfer, each university also adopts necessary policies and procedures to promote the company establishment. These procedures are useful to regulate the relations between the university and the proponents of the entrepreneurial initiatives. • TTOs represent the point of reference for the proponents of the university structures that intend to undertake an entrepreneurial activity at a high technological level in partnership with the university. • The proponents, willing to start a new entrepreneurial activity in partnership with the university, have to contact TTO and organize the process according to the procedures and the regulations in force in each university. The phases consist in: • preparing a business plan describing the strategy and the economic/financial results of the initiative; • regulating any conflict of interests between the activities performed by the university and those performed by the new company; • reaching an agreement on the transfer of the intellectual property, drawing up exclusive and not exclusive licences with the payment of royalties on the sales proceeds from the spin off to the university; • negotiating the equity share of the university in the proposed company (if it is provided); • nominating a person which represents the university in the Boards of Directors of the company; • reaching an agreement on the use of the spaces and the facilities of the university (for this purpose many universities have Technology Incubators); 23

24. Spin-off process (V) • One of the main objectives of the Politecnico di Milano is to exploit the research of the University. In order to achieve this objective, the University implemented some procedures to support the spin off company establishment. In this context, Politecnico promotes its employees who intend to establish companies shared by the Politecnico and aimed at producing and selling goods and services deriving completely or partly from the research results. In order to reach this goal, Politecnico established the Service for Research Exploitation and Incubator, which performs the following activities in spin off matters: • 1) It promotes the sensibility of the university staff regarding the spin off companies; • 2) It manages the relations with the professionals charged, if necessary, to assist the Politecnico in spin off matters; • 3) It performs activities of market research, consultancy internal to the Politecnico and negotiation useful to reach the appointed objectives; • 4) It performs incubator activities (for spin-off and start up companies) • In the Politecnico di Milano the spin-off companies are defined those companies originated by the research and in which the Politecnico shares the stock. A technical committee, elected by the Rector’s Deputy for Technology Transfer, has been established in order to assess these companies. • The technical commission is composed by: • The Rector’s Deputy; • The Director of the Department of the promoters • c) A professor belonging to another department; • d) An expert of the field and an expert of business mgm that can be also external to the Politecnico • e) A member of the Polimi Board • f) A manager of Polimi Administrative structure 24

25. Spin-off process (VI) The proposal of the spin off company has to be expressed by at least one structure of the Politecnico otherwise by one or more employees of the Politecnico, adding the following documents: 1) A business plan concerning at least the first three years of the spin off company or the further number of the years necessary to reach the break even; 2) The proposals for the by-laws and any further contracts; 3) The indications of the partners proposed to the Politecnico by justifying that choice; 4) A list of the members of corporate spin off bodies proposed by the member, different from those who have to be designated by the Politecnico. The proposal of the spin off company have to be addressed to the Service for Research Exploitation and Incubator and once the Rector’s Deputy receives the proposal he nominees the technical commission. The technical committee calls the proponent, evaluates the proposal and sends, in case of positive evaluation, the proposal of spin off companies and the opinion of the technical committee to the Board of the Department Directors, the Academic Senate and the Board of Directors. The evaluation from the academic bodies is based both on the technical-economical feasibility of the company and on the chances of virtuous returns for the University (the problems concerning the conflict of interests are carefully evaluated). If the spin off companies are established on the basis of onerous patents owned by the University, the Politecnico grants to the company an exclusive license of the patent, but with privileged conditions in comparison with third companies. 25